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Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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**Net Present Value Analysis** Lepton Industries is evaluating a project with the following projected cash flows: - **Initial Cost:** $470,000 - **Cash Flow Year One:** $123,000 - **Cash Flow Year Two:** $220,000 - **Cash Flow Year Three:** $181,000 - **Cash Flow Year Four:** $123,000 **Instructions:** 1. **Using a Discount Rate of 9%:** Based on the Net Present Value (NPV) model, determine whether the company should accept or reject the project. 2. **Using a Discount Rate of 17%:** Decide if the project should be accepted or rejected. 3. **Using a Discount Rate of 21%:** Make a decision on accepting or rejecting the project. **Data Table:** The data table provided allows you to copy its contents into a spreadsheet for further calculations and analysis. To do so, click on the icon next to "Data Table." **Decision Options:** For each discount rate (9%, 17%, 21%), select the appropriate decision from the drop-down menu provided in the interface. The options are to either accept or reject the project. **Note:** The NPV model helps assess the profitability of the project by considering the present value of future cash flows and comparing it to the initial investment cost. A positive NPV indicates a potentially acceptable project, while a negative NPV suggests rejection.
Transcribed Image Text:**Net Present Value Analysis** Lepton Industries is evaluating a project with the following projected cash flows: - **Initial Cost:** $470,000 - **Cash Flow Year One:** $123,000 - **Cash Flow Year Two:** $220,000 - **Cash Flow Year Three:** $181,000 - **Cash Flow Year Four:** $123,000 **Instructions:** 1. **Using a Discount Rate of 9%:** Based on the Net Present Value (NPV) model, determine whether the company should accept or reject the project. 2. **Using a Discount Rate of 17%:** Decide if the project should be accepted or rejected. 3. **Using a Discount Rate of 21%:** Make a decision on accepting or rejecting the project. **Data Table:** The data table provided allows you to copy its contents into a spreadsheet for further calculations and analysis. To do so, click on the icon next to "Data Table." **Decision Options:** For each discount rate (9%, 17%, 21%), select the appropriate decision from the drop-down menu provided in the interface. The options are to either accept or reject the project. **Note:** The NPV model helps assess the profitability of the project by considering the present value of future cash flows and comparing it to the initial investment cost. A positive NPV indicates a potentially acceptable project, while a negative NPV suggests rejection.
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